The cost to build a house has risen over the last decade. According to the National Association of Home Builders (NAHB), the average construction cost of a home is $296,652, or $114.36 per square foot, which accounted for 61% of total sales costs as of 2019. This compares to 50% of the total sales cost of a home build in 2002. The cost of construction is rising, so it's critical for real estate investors to understand exactly how much it costs to build a house so they can optimize for expenses.
Here's an overview of how much it costs to build a house, the process of building a rental property, a simple home construction formula you can use to estimate costs, and the team you'll need to ensure the new construction is successful.
Custom home costs breakdown
There are a thousand different variable costs associated with building a house. Are you building a coach house? A bungalow? A 3-story townhome? A modular home? A triplex? A mansion? Each of these asset classes will have different price points.
Generally speaking, here are the variable costs associated with building any kind of house. This cost breakdown includes estimated averages from the NAHB, which are from 2019, so keep in mind that costs will likely increase in the future.
- Building permits and fees: Before you break ground, you need to get approval from and pay your local jurisdiction. You may also need a land survey. These are permit and development fees. Cost: $18,323 (6% of construction cost).
- Excavation and foundation: If you're going below grade, you'll need to dig, or maybe you're building a concrete foundation. Cost: $34,850 (11% of construction cost).
- Frame: This includes the lumber and trusses that make up the shell of your property. Cost: $51,589 (17% of construction cost).
- Exterior finishes: Roofing, siding, windows, and doors. Cost: $41,690 (14% of construction cost).
- Major house systems: Plumbing, HVAC, and electrical work. Cost: $43,668 (14% of construction cost).
- Interior finishes: This is a highly variable cost, but it includes what you would traditionally associate with a new-build home, including insulation, drywall, countertops, painting, lighting, cabinets, flooring, appliances, and the list goes on. The interior finish is the biggest variable cost you can control. Cost: $75,259 (25% of construction cost).
- Final finishes: These are the variable building costs associated with what's typically referred to as curb appeal: landscaping, deck, patio, and driveway. Cost: $20,116 (6% of construction cost).
There are a number of other variable costs that are typical of most home sales but may not apply to your situation. It is worth considering these secondary costs to building a house:
- Contractors: Unless you're building the new house yourself, you're going to need to consider the labor cost at various stages of your build. This includes electricians, framers, plumbers, roofers, and so on. You may be able to find a builder who can do all of the build, which will cut down on costs.
- Marketing: Are you selling the new home you've built? Or are you going to rent it out? Both of these require some cost to market the property for sale or rent.
- Land: Keep in mind that the above doesn't include your land. If you still haven't acquired a properly zoned lot, be sure to account for land cost in your home-building estimate.
- Cleanup: New-home construction is messy, and you'll have to pay for the cleanup when everything is done.
- Architectural drawings: If you don't already have a legal architectural drawing or floor plan, your local municipality will likely require one for their approval of your new home build.
- Financing: Are you using construction financing from a lender to fund your build? There will be a number of fees and interest costs associated with financing the build of a house.
- Inspections: Prior to, during, and following your build, you will likely be required to adhere to certain inspections from your local municipality, which will cost you money. Further, you may want a home appraisal inspection completed following your new-home build to get a benchmark of the value of your property.
How to estimate how much you need to build a house
Now that we understand the variable costs associated with building a house, it's time to do some math. If the average cost to build a house (excluding all the additional potential expenses noted above) is $296,652, and the average square footage of a house in America is 2,594, then your cost per square foot is $114.36 ($296,652 / 2,594).
So if you're planning on building a 1,200-square-foot bungalow, you would be looking at a build cost of $137,232. Keep in mind that this price doesn't include contractors, land, and financing.
Homebuilding costs FAQs
How does your building material affect the cost of building your house?
The higher-end finishes you choose, the higher your costs. Also, your location will affect how much it costs to ship those materials.
How can you save money on building materials when building a house?
If you do a lot of the work yourself, acquire land cheaply, and cut down on high-end finishes, then you can keep your cost to build low.
Who should you hire to build your house if you want to save money?
Hiring a general contractor who has experience in all aspects of homebuilding, such as plumbing, HVAC, roofing, framing, and drywall, will save you from hiring a different contractor for each homebuilding phase.
What can you forgo to save on costs when building a house?
Don't build a basement, keep it to one story, and use lower-end finishes. All of these will save you money -- and time -- when building a house.
How much does an average house cost to build per square foot?
According to NAHB, the average material cost to build a house is $296,652, with the average square footage of a house being 2,594. That means your cost per square foot is $114.36 ($296,652 / 2,594).
How does location affect the cost of building a house?
If you are remote, then the cost to transport building material will increase. You may want to consider transporting the material yourself if the cost is high. Further, if you're located in a city, your land cost goes up substantially so your cost to build also rises.
How much does it cost to build a new house where another house already is?
The cost of demolition can vary between $5 and $10 a square foot. You will also need to factor in the cleanup and land preparation for your new home build.
How can mountainous land change the cost of building your house?
If you're building on a grade, then you will likely see additional expenses, like surveys, stilts, or retaining walls. All of these are additional costs for building a new home.
How does the number of windows affect the cost of building your house?
You will have to remove existing walls, cut studs, and install brand new windows and insulation, all of which are highly variable depending on size and material. This can range from $400 and up per window.
Who can you hire to give you an estimate on your basic house-building costs?
Any general contractor, home builder, or architect should be able to give you a rough building-cost estimate tailored to your design plans.
What ways can the architectural layout of the design affect the cost of building your house?
Whether you have a basement or a second story and the finishes you choose will all have a major impact on your building cost.
How much does it cost to build a house when you add a second floor?
On an existing structure, this cost starts at roughly $100,000, but if you're building from scratch, the additional cost is simply the cost per additional square foot since you're already building a new structure.
The bottom line
As of 2019, the average cost to build a house was $296,652, or $114.36 per square foot. There are considerable variable costs not included in this amount, including contractors and land acquisition. Use the above guidelines and formulas to get a better understanding of how much it costs to build a house.
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